Will Soft Prices Propel Agency Start-Ups?

The chief executive officer of an online agent quote service is predicting that softening insurance rates will fuel a surge in agency start-ups, with the formation of “hundreds” of brokerages and independent agencies.

Richard Kerr, the chairman and CEO of Dallas-based MarketScout, made his comments in the wake of findings that overall premium growth for property-casualty insurance was roughly 7 percent in May a tiny gain compared with double-digit jumps in past years. Property insurance premium costs decreased five-to-10 percent last month, even as some tougher liability lines increased, MarketScout found.

Mr. Kerr said that as the market softens, insurance companies will be more aggressive looking for business and seek more outlets in the form of new agents and brokers.

Up to now, he said, the insurers have refused to deal with start-ups and appoint them as agents unless they could promise to deliver $1 million to $5 million in premium.

“We want it up front and we want it on the books now,” he said, mimicking carrier sentiments that indicate what the climate has been like during the last four years. But it's changing. There's pent-up demand for new start-ups, he said.

In addition to MarketScout.com, an online insurance portal designed to assist the retail insurance agents in locating quotes from insurance companies, he said there are “a number of exchanges these brokers can go to and get access to four or five carriers.”

Mr. Kerr predicted that not only will smaller independent agents be formed, “but we will also see new upstart brokers as clusters of people leave the bigger brokers” to start their own operations.

Venture capitalists will also be arriving with cash to invest in start-ups. “You'll see the formation of new brokers,” he said.

MarketScout's announcement accompanying its May composite premium increase estimate said brokers and their insurers “will be fighting to maintain their renewals as intense competition for major accounts accelerates.”

Mr. Kerr said, in the coming soft market, “a lot of business will be moving Every deal will be subjected to aggressive competition.”

With new aggregators, start-ups have access to 20-to-30 markets, which was not the case a few years ago, he said. Now, “if you have the markets and a computer and a disk, you're ready to go.”

Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Will Soft Prices Propel Agency Start-Ups?

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